Petrobras (PBR)

Legal base

Opting for the cash or accrual taxation system is guaranteed by article 30 of Provisional Measure (MP) 2158-35/01. Choosing which system to use in the beginning of the year is not compatible with the legislator’s intention, which is made clear in the preamble of this MP: “This proposition is justified considering that the acknowledgement, for tax purposes, by means of the accrual basis, of income derived from variations in the exchange rate, not always represents a definitive result for the beneficiary, since the exchange rate might oscillate as a result of several economic factors. Therefore, revenue produced at a first moment by a given asset or liability can be absorbed, whether completely or partially, at a second moment, by the same asset or liability on account of the oscillating exchange rate. In fact, in a floating fee system such as the one currently in effect, the results caused by a variation in the exchange rate will only be realized when the operation that gave rise to it has been completed.”

The legislator’s intention was to neutralize the effects of the daily oscillations in the exchange rate, which take place throughout the year, on the companies’ trade and financial operations. The purpose of the MP is precisely to allow for an ongoing evaluation throughout the year.

With the devaluation of the exchange rate, corporate tax loads increase on account of higher taxation on non-effective gains derived from the variation in the exchange rate, since the operations have neither been paid for or received yet, and, thus, there is no way to know whether or not there will be a profit. Taxing companies for profit which is derived from a variation in the exchange rate and which is unreal frustrates the legislator’s original intention, which was to safeguard the taxpayer from undue collections caused by oscillations in the exchange rate.